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3232SCOTUS: Private Entities Operating Forums for Speech Are Not State Actorshttps://www.lexblog.com/2019/07/16/scotus-private-entities-operating-forums-for-speech-are-not-state-actors/
Tue, 16 Jul 2019 23:22:23 +0000https://www.lexblog.com/2019/07/16/scotus-private-entities-operating-forums-for-speech-are-not-state-actors/Against the background of lawsuits and debate about the role of communications service providers in moderating speech on their platforms, the U.S. Supreme Court has weighed in, affirming that private entities that host forums for speech are not state actors subject to constitutional requirements.

The Decision

In a 5-4 decision by Justice Kavanaugh, the Court held in Manhattan Community Access Corp. v. Halleck, 587 U.S. __ (2019) that a private, nonprofit corporation operating a public-access TV channel is not a state actor subject to the First Amendment. Producers of public access programming had claimed the channel was a state actor that violated their First Amendment rights after it suspended them from its services due to their films’ content. The Court disagreed.

Exclusive Public Function Analysis

As the Court recognized, there are only few instances in which a private entity can be a state actor:

First, the private entity can be a state actor where it performs a traditional, exclusive public function, that it, one that has been traditionally and exclusively performed by the government. The Court noted there are “very few” (e.g., running elections, operating a company town). Op. at 6–7.

Second, a private entity can be a state actor if the government outsources a constitutional obligation to the entity. But if the government is not required to perform the function at issue, a private entity cannot become a state actor.

The Court found there was no state action in this case because (1) the government has not traditionally and exclusively operated public access channels, and (2) it is not obligated to operate these channels.

Implications of The Decision

The Court’s reasoning suggests that private entities operating forums for speech (not only public access TV channels) are not transformed into state actors. First, hosting a forum is not a traditional, exclusive public function. Like public access channels, forums for speech have been operated by public and private entities. Second, the government is not required to operate these forums. So it does not outsource any constitutional obligation to a private entity that operates a forum.

The logical outgrowth is that private entities may moderate speech in their forums without implicating the First Amendment. There are other cases concerning the issue (discussed here, here, and here, e.g.). But the U.S. Supreme Court had not weighed in until Halleck. And its decision should foreclose the idea that mere association between private entities and the government is state action.

A nonprofit corporation required by law to operate a public access channel is not a state actor. Therefore, online platforms with even more tangential relationships with government should not be either. Were the opposite to be true, service providers’ editorial discretion would effectively cease to exist. As the Court reinforced, this would “‘create a court-made law wholly disregarding the constitutional basis on which private ownership rests in this country.’” Op. at 10.

]]>Bad Review Online? California Court Says Pursue the Poster not the Platformhttps://www.lexblog.com/2018/08/10/bad-review-online-california-court-says-pursue-poster-not-platform/
Fri, 10 Aug 2018 16:04:34 +0000https://www.lexblog.com/2018/08/10/bad-review-online-california-court-says-pursue-poster-not-platform/You see it and your heart sinks: a one-star review with negative feedback for your business on an online review site. You think it’s unlawful and want it taken down.

What do you do?

The California Supreme Court recently considered a case showing what not to do. In Hassell v. Bird, Ava Bird left one-star reviews for her lawyer, Dawn Hassell, on Yelp. Ms. Hassell wanted the reviews taken down so she sued Ms. Bird for libel in California. As part of the suit, Ms. Hassell obtained an injunction directing Yelp (who was not a party) to remove the reviews.

Reviewing the five years of litigation through which Ms. Hassell pursued the injunction against Yelp, the California Supreme Court concluded that the website was the wrong target:

“Nevertheless, on this record, it is clear that plaintiffs’ legal remedies lie solely against Bird, and cannot extend — even through an injunction — to Yelp.”

The Court’s decision was grounded in the federal Communications Decency Act (“CDA”), 47 U.S.C. § 230. In the CDA, Congress decided more than 25 years ago that online platforms that host users’ speech cannot be liable for what people say on their websites. It provides that:

“No provider … of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

47 U.S.C. § 230(c)(1). Further, “[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.” Id. § 230(e)(3).

As applied in this case, the CDA immunized Yelp from liability for publishing (i.e. hosting) the reviews in question, and it could not be forced to remove Ms. Bird’s reviews. The decision in Hassell not only reaffirmed this core principle underlying the CDA, but also addressed Ms. Hassell’s attempted “end-run” on CDA immunity by rejecting the following arguments:

Ms. Hassell argued that because Yelp was not a party, it was not entitled to CDA immunity. The Court disagreed, holding that because Yelp was “being held to account for nothing more than its decision to publish the challenged reviews,” it was entitled to immunity even as a non-party.

Ms. Hassell argued the injunction did not impose liability on Yelp. Again, the Court disagreed, holding that the CDA was meant to “shield Internet intermediaries from the burdens associated with defending against state-law claims that treat them as the publisher or speaker of third party content, and from compelled compliance with demands for relief that … similarly assign them the legal role and responsibilities of a publisher qua publisher.”

So what should Ms. Hassell have done? The Court set out her legal remedies: enforce against Ms. Bird the existing judgment, which required Ms. Bird to take efforts to remove the reviews. And then explore civil contempt remedies against Ms. Bird if she failed to comply with the court order entering judgment. In a blog post, Yelp’s deputy general counsel also suggests that “litigation is never a good substitute for customer service and responsiveness, and had the law firm avoided the courtrooms and moved on, it would have saved time and money, and been able to focus more on the cases that truly matter the most — those of its clients.”

Cy pres remedies ... are a growing feature of class action settlements. ... In a suitable case, this Court may need to clarify the limits of the use of such remedies.” Marek v. Lane, 134 S. Ct. 8, 9 (2013) (Roberts, C.J., respecting denial of certiorari).

In Marek, the U.S. Supreme Court denied cert in a case questioning the propriety of a cy pres award in a class action settlement. But Chief Justice Roberts suggested he might nevertheless be on the lookout for “an opportunity to address the more fundamental concerns surrounding the use of such [cy pres] remedies in class action litigation, including when, if ever, such relief should be considered; how to assess its fairness as a general matter; ... what the respective roles of the judge and parties are in shaping a cy pres remedy; how closely the goals of any enlisted organization must correspond to the interests of the class; and so on.” Id.

Has that time now come? A petition for certiorari to the U.S. Supreme Court in Frank v. Gaos, Case No. 17-961, filed in January 2018, again raises the issue of cy pres settlements and class actions, in the content of a settlement of a privacy class action litigation brought against Google. Briefing will soon be complete and, if petitioners have their way, the U.S. Supreme Court may soon be addressing the issues that Chief Justice Roberts raised almost five years ago.

Case Background

In Frank, two objectors to a class action settlement argue that the settlement’s reliance on a cy pres award—with no payments made directly to class members—is not “fair, reasonable, and adequate,” as required by the Federal Rules of Civil Procedure. In the underlying case, the class settlement included only a cy pres award paid by defendant Google to six entities that focus on research into issues of internet privacy, and an award of attorneys’ fees.

Petitioners’ Arguments for Review

The petitioners claim that cy pres awards (1) “typically fail to redress class members’ alleged injuries”; (2) drive a wedge between class counsel and their clients; (3) are used in settlements that minimize costs or benefit defendants; (4) satisfy the requirement of manageability where it might not be met; and (5) create the appearance or reality of judicial conflicts of interest.

Because of these concerns, and what petitioners assert is the increasing prevalence of cy pres awards in class action settlements and a conflict between the underlying Ninth Circuit decision and the other circuit courts of appeal, the petitioners have urged the Supreme Court to grant cert. Petitioners have garnered amicus support from the Center for Constitutional Jurisprudence, the Cato Institute, the Center for Individual Rights, and 17 state attorneys general.

Google’s Arguments in Response

Google has opposed the petition for certiorari, arguing that a cy pres award was particularly well-suited to this settlement because, as the trial court determined, distribution to class members was infeasible and class members had not and could not allege they had suffered any actual damage. Google has also asserted that, in fact, the use of cy pres awards in class action settlements is actually declining and there is no conflict among the circuit courts. The class action plaintiffs have also joined in to oppose the petition, essentially mirroring Google’s arguments.

What Happens Next?

The petition is scheduled to be circulated for conference at the Supreme Court at the end of March. We should know shortly thereafter if this is case in which the Court may finally examine the issues and concerns that the Chief Justice raised in Marek. Stay tuned for updates.

]]>In Action Against Yahoo, the SEC Seeks Emails Without A Warranthttps://www.lexblog.com/2017/07/18/in-action-against-yahoo-the-sec-seeks-emails-without-a-warrant/
Tue, 18 Jul 2017 17:06:58 +0000https://lexblognetwork.wpengine.com/2017/07/18/in-action-against-yahoo-the-sec-seeks-emails-without-a-warrant/Since 2010, the SEC has abided by the Sixth Circuit’s decision in United States v. Warshak, and has not subpoenaed emails of an individual from third party service providers. That changed, however, when the SEC decided to test the law by filing a recent action against Yahoo to force compliance with a subpoena for the emails of an individual.

In Warshak, the court held that the use of something less than a warrant, such as a subpoena or court order under the Electronic Communications Privacy Act (ECPA), violates the Fourth Amendment. Not only had the SEC respected that decision but the DOJ had also changed its policies to comply with Warshak. While the SEC stayed out of court, it did oppose efforts in Congress to codify the Warshak holding via ECPA reform. However, when Yahoo refused to comply with an SEC subpoena based on Warshak, the SEC took Yahoo to court, leading to a hearing on the matter on June 30, 2017 in the federal court for the District of Maryland. SEC v. Yahoo, Inc., Case No. 8:15cv1339 (D. Md) (GJH). While the Judge did not make a decision at the hearing, he did express views on the facts and law that will influence his decision.

How did we get here? – Before bringing its subpoena enforcement action against Yahoo the SEC attempted to obtain the emails directly from the individual. But the individual did not fully comply, and the Judge entered an order requiring him to show cause why he should not be held in contempt. That avenue has still not been exhausted, and if the contempt process played out and resulted in the production of the emails by the individual, there would be no need for the SEC to seek emails from Yahoo. Yet the court has not taken that approach, and in fact suggested to the SEC at a prior date that it issue a subpoena to Yahoo. During the hearing, the Judge expressed reservations about contempt procedures such as placing the individual in jail, suggesting this would be a last resort.

Is Fourth Circuit law on point? – At the beginning of the hearing, the Judge said he was leaning in favor of the SEC’s position, relying on the Fourth Circuit’s decision in United States v. Bailey. That case held that a government’s subpoena to a physician for his records did not violate the Fourth Amendment. In the view of the Fourth Circuit, because subpoenas are not warrants they are limited by a general reasonableness standard, not by the probable cause requirement. Yahoo attempted to distinguish Bailey as a case where the subpoena was served on a doctor for his own records, not a third party with access to another’s privacy. Yahoo argued the more relevant case in the Fourth Circuit is United States v. Graham, addressing a government subpoena for historical cell site location data (non-content data) from a phone company. In Graham, the Fourth Circuit made clear that requests for content were different, and afforded Fourth Amendment protection.

Warshak – The Judge seemed receptive to the SEC’s position that he was not bound by Warshak because it is a Sixth Circuit case. The Judge also stated that Warshak was distinguishable because the case involved a lack of notice, thus requiring a heightened standard of probable cause with judicial review. As Yahoo correctly pointed out, however, notice was not an issue in Warshak and had nothing to do with the court’s decision.

“It doesn’t feel right” – The Judge recognized one of the problems with the SEC’s position. He was troubled by the fact that in a situation where the DOJ is conducting a parallel criminal investigation, the DOJ could evade the requirement for a warrant by having the SEC obtain the same records by a subpoena, then turn the records over to the DOJ. The Judge added that while it is true that there would be judicial review of the subpoena, the court would be deciding only relevance, a much lower standard than probable cause. The Judge stated, “part of me is very concerned about that, it doesn’t feel right.” In response, the SEC simply claimed that in this particular case it was not seeking to help DOJ evade the warrant requirement.

Notice resolves the Fourth Amendment issue? – The Judge noted that the SEC’s subpoena allowed for notice and an opportunity to contest the subpoena, thus meeting the Fourth Amendment requirement of reasonableness. Yahoo asserted that the warrant requirement applies when invading a reasonable expectation of privacy, and the SEC’s action was no different than seeking the contents of an individual’s safety deposit box from a bank or an individual’s private records in his apartment from the landlord, both of which require a warrant. As Yahoo noted, the SEC in effect was making Yahoo an agent of the government by asking it to invade its customer’s privacy. This made the SEC’s action a search, not a subpoena. Under these circumstances, Yahoo argued the Court should follow Warshak.

Raising the Third Party Doctrine – The Judge also questioned whether the fact that the emails were held by a third party led to a lower expectation of privacy. Yahoo disagreed, stating that the government cannot ask a bank to open an individual’s safety deposit box without a warrant. Yahoo also pointed out that the SEC did not dispute that the individual had a reasonable expectation of privacy in the emails held by third party service provider Yahoo.

Alternative means? – The Judge asked the SEC whether it would help to enter an order requiring the individual to turn his computer over to the SEC. The SEC said the emails were unlikely to be on the individual’s hard drive. Yahoo offered to produce the headers of the emails so the SEC could determine whether the individual withheld any emails. Yahoo also pointed out the SEC could subpoena other individuals in the headers. The SEC did not express a willingness to accept either alternative, and the Judge did not express a view on those options.

“Not an easy case” – The Judge noted the “ferocity” of Yahoo’s positions at the hearing and said this is “not an easy case.” The Judge said it would take the matter under advisement and make a ruling at a later date.

However the court rules, there may be an appeal to the Fourth Circuit. A ruling by the Fourth Circuit at odds with the warrant requirement articulated in Warshak will create a circuit court split and the issue could ultimately end up in the Supreme Court. However, the issue will be moot if Congress passes an ECPA reform bill codifying Warshak, as has been proposed. In the meantime, if the district court rules against Yahoo, third party service providers can expect the floodgates to open with respect to SEC subpoenas.

]]>India Joins the “We’re Not So Sure About this Bitcoin Thing” Chorushttps://www.lexblog.com/2013/12/27/india-joins-the-were-not-so-sure-about-this-bitcoin-thing-chorus/
Sat, 28 Dec 2013 05:13:41 +0000https://lexblognetwork.wpengine.com/2013/12/27/india-joins-the-were-not-so-sure-about-this-bitcoin-thing-chorus/In a press release this week, the Royal Bank of India (RBI) echoed recent comments from European regulators about the risks associated with virtual currencies and also said it is “presently examining the issues associated with the usage, holding and trading or [virtual currencies] under the extant legal and regulatory framework of the country,” suggesting that the press release is not the last word on this issue from the RBI.

The warnings from RBI focused on the risks to customers who buy, sell, or trade in virtual currencies:

Security risks, such as “losses arising out of hacking, loss of password, [and] compromise or access credentials, malware attack, etc.” and the potential “loss of the e-wallet”;

The absence of a central regulatory authority to provide recourse for customer problems or disputes;

The speculation and “[h]uge volatility” in the value of virtual currencies;

The potential for legal risk arising out of the use of an unregulated exchange platform; and

The use of virtual currencies for illicit and illegal activities.

These warnings add to the chorus of regulatory agencies around the world that have recently issued warnings about the perceived risks associated with virtual currencies. In at least one sense, however, India’s action is more worrisome to Bitcoin’s proponents. Whereas response to the various European regulators’ warnings was relative muted, India’s statement prompted some major Indian Bitcoin exchanges to immediately suspend operation at least temporarily. (Some Indian exchanges continue to operate). This may be a signal that further regulatory developments in India will not be positive for Bitcoin. If India follows the path of China and effectively halts the commercial use of Bitcoin, Bitcoin would be 0 for 2 at least for the moment in the world’s two most populous countries.

]]>European Regulators Focus on Virtual Currency Risks and Classificationhttps://www.lexblog.com/2013/12/18/european-regulators-focus-on-virtual-currency-risks-and-classification/
Wed, 18 Dec 2013 15:33:45 +0000https://lexblognetwork.wpengine.com/2013/12/18/european-regulators-focus-on-virtual-currency-risks-and-classification/With this weeks’ news out of Denmark, European regulators continue to clarify their positions on Bitcoin and other virtual currencies. Two themes are emerging. First, regulators are warning consumers to proceed with caution, given the perceived risks posed by virtual currencies. Second, at least three European countries have now said that virtual currency does not fall within the regulatory definition of currency or money, and that it is instead an asset, meaning that gains from buying and selling virtual currency are taxable.

The Danish FSA also said that Bitcoin and other virtual currencies are not covered under Danish financial regulation and that, for that reason, the FSA had previously found that at least one (unnamed) virtual currency exchange could operate in Denmark without requiring any approval to do so. (This may change. As of today, further news reports out of Denmark have said that the FSA is considering amending its rules to regulate virtual currencies.)

That comment from the Danish FSA about the regulatory status of Bitcoin echoes in part the statement last Friday from Norway’s Director of Taxation as reported by Bloomberg, saying that Bitcoin does not fall within Norway’s definition of money and won’t be a considered a currency. Instead, Norway will treat Bitcoin and other virtual currencies as an asset subject to capital gains taxation. Germany took a similar stance earlier in the year, saying it would treat Bitcoin as “private money” and that gains would be subject to capital gains tax, and sales subject to VAT.

This potential for Bitcoin and other virtual currencies to result in tax liability for consumers who buy or sell virtual currencies was one of the potential risks to consumers flagged by the EBA’s warning on virtual currency. Other concerns expressed by the EBA included:

Virtual currency markets and exchanges are not regulated financial institutions that insure against loss.

Bitcoin and other virtual currency transactions are irreversible and EU law does not protect the refund rights of consumer who pay with virtual currencies.

Virtual currency markets can be highly volatile.

What does all this mean? The warnings about the risks associated with virtual currency are not new. As Bitcoin and other virtual currencies mature, they will have to address those risks.

The apparent trend towards the classification of Bitcoin and other virtual currencies as “non-money” assets subject to taxation, however, may be more significant. In the United States, federal regulators have also taken the view that Bitcoin and similar virtual currencies are not “real currency” in that they are not issued by any national government. But U.S. regulators have not taken the “therefore” step and declared Bitcoin to be an asset or a commodity subject to taxation or another regulatory regime. There may be more U.S. guidance on this point soon, as the Government Accountability Office (GAO) has asked the IRS to look at the issues around taxation of virtual currency transactions.